On The Exchange podcast, Ryan Loehr, Private Wealth Advisor & Partner of Emanuel Whybourne & Loehr, sat down with Bob Sahota, Chief Investment Officer of Revolution Asset Management, as they explored the role that private debt can play in portfolios. Private debt might provide investors with a middle ground between equities and traditional fixed income – with an equity-like level of returns currently on offer, but fixed-income characteristics. As we begin 2023 with economic uncertainty, a likely recession in developed market economies and potential downgrades in corporate earnings, private debt may widen the toolkit that investors have available.
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In this excerpt, Bob discusses how Revolution Asset Management has demonstrated their ability to preserve investor capital throughout the cycle, how the credit discipline they employ can help to mitigate the risk of loss / default and his learnings from over 20 years’ experience of managing private debt.
In this excerpt, Bob explores Revolution Asset Management’s unique valuation policy process and how the underlying assets in the portfolios are also evaluated by a third-party agent who assesses the carrying value of each of the loan assets.
In this excerpt, Bob reflects on the evolution of private debt in Australia and discusses the three keys to success in this asset class. As a defensive alternative allocation:
- It offers investors a floating rate that is beneficial in a rising rate environment,
- Secured loans against market leading companies or a pool of loans; and
- Diversification opportunities in different industries or sectors that you wouldn’t get exposure to in liquid markets.
Bob highlights the two common pitfalls seen in the private debt space in which mistakes investors potentially may make:
- Private debt is predominately illiquid – managers have invested into illiquid assets but promise investors liquidity on the other side.
- A much higher risk return – becoming more correlated to the general market. There is a real spectrum of risk/return in private debt from defensive to quite risk-taking lending, such as property development or lending to SMEs who may not be able to pass on input price rises to their end customers or lending to cyclical sectors.